Japan's Economy in Recession, Government Says
Monday, November 17, 2008
TOKYO, Nov. 17 -- Japan, the world's second-largest economy, has fallen into recession, the government said Monday.
The country's gross domestic product contracted at an annual rate of 0.4 percent from July to September, marking the second consecutive quarter of negative growth -- the technical definition of a recession. Japan's previous recession was in 2001, after the collapse of the dot-com bubble in the United States.
Japan's economy minister warned that the situation could worsen: Collapsing sales of Japanese goods in the United States and Europe amid the global downturn threaten to make the country's export-dependent economy even weaker in coming months.
"Downside risks to the economy are growing further, and Japan is in a very serious situation," Kaoru Yosano said at a news conference.
The announcement culminates nearly two months of relentlessly dismal economic news in Japan, where massive rates of private savings and strong balance sheets of major companies have not diminished a widespread sense of economic freefall.
During that time, the stock market has plunged to lows not seen in 26 years and the profits of some of the world's best-known and most-respected companies, such as Toyota, Honda and Canon, have been slashed by as much as 70 percent. There is little likelihood that profits of major exporting companies will recover in the coming year, economists say.
Even before the 2001 recession, the country was mired in a severe recession throughout much of the 1990s -- its "lost decade" -- as a property bubble burst and the banking system teetered on the brink of collapse.
The legacy of that recession is a huge public debt -- the largest among major developed countries -- that significantly limits the government's borrowing capacity. Although the economy has grown in the past seven years, the rate of growth has been much slower than elsewhere in Asia.
To help consumers and to prime the pump for recovery, the government of Prime Minister Taro Aso has proposed a cash handout of about $600 for a family of four. It is the centerpiece of a stimulus package worth about $275 billion, of which $50 billion would come from new spending.
But the handout offer has been complicated by government indecision about whether it should be given to rich and poor alike. The indecision, combined with the amount of money offered, has soured public attitudes toward the handout. In a poll last week, 63 percent said they think the measure is unnecessary.
There is little hope among economists that any government action can spare Japan from a severe and protracted recession.
Masamichi Adachi, senior economist at J.P. Morgan Securities in Tokyo, recently downgraded his outlook on the Japanese economy, the Associated Press reported.
"We are now looking for a severe recession, similar to that during Japan's own financial market crisis in 1997 to 1998, and to the current U.S. recession, in terms of depth of real GDP contraction," he said in a report.